The USA is the world’s third largest exporter. In 2018 US exports totaled $2.5 trillion, a 6% increase over 2017. (US imports in 2018 totaled $3.1 trillion.) Only China and the EU export more than the USA. Yet exports account only for 12% of US GDP.
In 2018 the USA had record high exports to many countries, including Mexico, Japan, and the UK. (US imports also hit record highs from China, Mexico, Germany, and other countries, engendering record high trade deficits.)
Two-thirds of all US exports are goods and one-third are services. (The USA runs a trade surplus in services.) About a third of US goods exports are capital equipment. Another third are industrial supplies. The remaining third are consumer goods, food, cars, and other products.
If it were a country the largest US export market would be the European Union. The main European importers of US goods, in order, are the UK (pending Brexit), Germany, the Netherlands, France, Belgium, Switzerland (not an EU member), Italy, and Spain. US exporters continue extending record amounts of open-account payment terms to their European customers, but they’re doing so in terra incognita as Europe has not faced so much uncertainty at any time in recent memory. The impending departure of the UK (Brexit) is not the only challenge facing the EU. The Eurozone monetary union is still a work in progress, particularly vulnerable if there were another economic downturn.
About one-fifth of all US goods exports go to Canada. When extending credit north of the border many US companies regard Canada almost as an extension of the USA. Payment performance from Canadian trade debtors remains consistent with US trends, but exporters with large Canadian exposures do well to remain apprised of political and economic developments there.
Mexico is the next largest US export market. If the USMCA is ratified, the new agreement would bring a number of changes vs the NAFTA agreement it is intended to replace, but these are not expected to dampen Mexican demand for US goods and services. US exporters continue extending credit terms to their customers in Mexico, generally with positive outcomes. But there is a great deal of internal and external uncertainty around the country’s new political leadership.
Outside of North America, China is the country that imports the most from the USA. While demand for open-account payment terms continues to grow, the absence of reliable financial information on many Chinese companies can make it challenging for US exporters to make credit decisions. Commercial insolvencies are on the rise in China, owing to the softening economy, greater utilization of bankruptcy filings, and changes in the Chinese financial system.
The next largest markets in Asia for US exports are, in rank order, Japan, South Korea, Hong Kong, Singapore, Taiwan, India, Malaysia, Thailand, Vietnam, and Indonesia. Payment trends from Asian debtors remain generally satisfactory although there are concerns about sustaining the growth of these countries’ own exporting volumes. Demand for trade credit is increasing across the region, particularly from India.
In South America, Brazil imports the most from the USA, followed by Chile and Colombia. Buyers throughout Latin America and the Caribbean have been seeking—and in some cases receiving—longer payment terms from US exporters, even amid political changes in Brazil, high inflation in Argentina, rising insolvencies in Chile, and other challenges.
The Middle East is another major destination for US exports, primarily the UAE, Saudi Arabia, and Israel. Notwithstanding regional and global tensions, credit continues being extended to these markets with generally positive results.
Rounding out the top export markets for US goods and services are Australia and Russia, the latter of which would be a larger US trading partner were it not for the sanctions which constrain commercial activity.
Of course the USA is itself a challenging market for extending credit. Despite robust economic activity GDP growth is slowing, infrastructure investment is lagging, tariffs have unbalanced some key sectors, and political uncertainty will only increase as the 2020 election approaches.
You need to extend competitive payment terms to your US and international customers in order to grow. But what happens if you don’t get paid? Customers can go out of business, run short on cash flow, or fail to pay for other reasons . . . including, in other countries, currency issues and other political risks.
The solution is trade credit insurance, coverage that protects receivables—domestic or foreign—against virtually all nonpayment risks. Credit insurance helps you win more orders, increase profit, and arrange the most favorable A/R financing. Utilized much more extensively in other countries, trade credit insurance is catching on in the USA as a tool for increasing both sales and access to working capital.
In addition to benefitting from credit insurance as assignee or loss payee on their borrowers’ policies, financial institutions use trade credit insurance for their own transactions including confirming and discounting letters of credit, offering non-recourse receivable discounting, providing supply chain solutions, tendering project finance, etc.
Meridian Finance Group has specialized in brokering trade credit insurance for over 25 years. With offices nationwide in the USA, as well as in London and Singapore, we work with every insurance company and government agency that writes credit insurance policies. Beyond negotiating the best coverage for our clients at the lowest cost, Meridian provides comprehensive technical support for every policy we broker . . . including in the event of claims.
The time to obtain credit insurance coverage is now, while most of your customers in most of your markets are paying your invoices in due course. When the next economic downturn arrives—whether globally, nationally, or in your sector alone—it may become more difficult or impossible to obtain new coverage. As with other kinds of insurance, you buy a policy now so you’ll be protected when the unexpected happens . . . which it will; you just don’t know when or where.